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Subject:  NT stock in 401K & conversion to taxable account Date:  3/29/2000  6:01 PM
Author:  vdalal Number:  20747 of 104808

Hello all :

I used to work for Nortel Networks and have about $35K in the form of NT stock in my 401K the cost basis for which is around $7K.

Now i read at the Vanguard retirement resource center that as regards stock in a 401K, it is better to move the money to a taxable account. More so with stocks whose value has greatly appreciated ( as NT has ). The article goes on to say that when one moves the stock from the 401K to a taxable account, then one owes taxes only on the cost basis ( average buying price of the stock ) and the rest ONLY when u sell the stock and that will be long-term capital gains at 20%.
As opposed to that, if u move your money to the new IRA, when retiring u will be taxed on the ENTIRE amount at upto 39.6%. They even have calculations to show that this strategy works.

If people are interested I can copy ( verbatim ) the brochure from Vanguard and post it here for everyone's benefit.

Now my questions are :
1) Is this a foolish thing to do ?

2) And also when I called up my 401K administrator at NT, the lady said that I will have to pay a 10% penalty since i was getting out of my 401K before I was 59 1/2.
Is this true ? The Vanguard article dd not say anything about penalties.

I am 27 years old and have a long way to go before i retire. So any foolish advice, suggestions and comments are welcome. TIA.


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